Security and Intelligence Services (India), promoted by Ravindra Kishore Sinha and Rituraj Kishore Sinha, is a leading provider of private security and facility management services in India. The company's portfolio of :

Private security services

comprising :

Security services:

The company is the second largest security services provider in India, in terms of revenue, as of FY16, and the fastest growing security services provider in India, based on revenues for FY10 to FY14, according to Frost & Sullivan. In addition, Freedonia ranks its wholly-owned subsidiary, MSS Security Pty (MSS) as the largest security services provider in Australia, jointly with a competitor, in terms of revenues, as of FY15. It provide a comprehensive range of security services ranging from providing trained security personnel for general guarding to specialized security roles in India and Australia. In Australia, it also provide paramedic and allied health, fire rescue services, mobile patrol, loss prevention and other related services.

The security services business in India consists of providing security solutions, including planning and deployment of security guards, security officers, armed guards, firemen, dog handlers, consulting, investigation works and command and control centre employees. The security services business employed 96,504, security guards and rendered security services at 9,328 customer premises servicing 3,000 customers, as of April 30, 2017. The key customers in India include leading businesses in a wide range of sectors such as banking and financial services, IT/ITeS and telecom, automobile, steel and heavy industries, governmental undertakings, hospitality and real estate, utilities, educational institutions, healthcare, consumer goods, engineering and construction. It also provides security services to several government organizations and public sector undertakings in India. Six out of top 10 customers have been customers for over five years. For FY 2017, 16.55% of its revenues from operations from security services in India were derived from these customers in the top 10, who have been with it for over five years

The company provides a full range of services across all market segments in Australia ranging from providing trained security personnel for general guarding to specialized security roles. It provide static guarding, including access control and control room monitoring, aviation and maritime screening, centralized video surveillance, alarm monitoring and response, roving and mobile patrols, escort guards, emergency response, planning, and exercises, first aid and medical support, traffic management, customer service security training, risk analysis, consulting, concierge and event management services. It deliver these services and other quality paramedic and allied health, fire rescue and specialized training services to key customers in the aviation, defense, healthcare, mining, natural resources, manufacturing, education and heavy construction industries. It also provides security services to several government organizations in Australia. Its market share of the Australian security services industry was 18%, in terms of revenue, as of FY15, according to Freedonia. All of its top ten customers in Australia have been its customers for over five years and together accounted for 42.82% of revenue from operations for FY17.

Cash logistics services:

The company is the second largest cash logistics service provider in India, in terms of market share by revenue, number of employees, ATMs served and cash vans utilized, as of March 31, 2015, according to Frost & Sullivan. Its cash logistics business in India includes services such as cash in transit including transportation of bank notes and other valuables, doorstep banking as well as cash processing, ATM related services including ATM replenishment, first line maintenance and safekeeping, and vault related services for bullion and cash.

In December 2014, the company acquired the cash and valuables services division of ISS in India to grow cash logistics business. The acquired business enlarged its footprint in south and west India with its strong customer base and wide network in these regions adding to its significant presence in north and East India. It has also been able to grow its cash logistics business in underserved markets such as north east India. In addition, its joint venture entities, SIS Cash and SIS Prosegur, entered into a business transfer agreement dated October 20, 2016, to acquire specified business contracts, vendor contracts, licensed properties, employees and related assets from Scientific Security, by way of a slump sale, effective December 10, 2016, for an aggregate consideration of up to Rs 18 crore, subject to certain conditions.

Cash logistics business consists of the following heads of operations: (a) cash in transit, including transportation of bank notes, coins, smart cards, passports, documents and other valuables, (b) doorstep banking, including pickup and delivery of bank notes, coins, smart cards and any other valuables as well as cash processing, (c) ATM related services including ATM replenishment, first line maintenance services delivered around the clock and cash processing for ATMS including counterfeit note verification, cash sorting and specialized packaging; and (d) safekeeping and vaults related services including transporting and storing valuables such as jewelry, bullion and cash. Through its cash in transit, doorstep banking, ATM related services and bullion and cash vaulting services in its cash logistics operations it service a diverse set of clients which include leading banks, financial institutions, the organized retail industry and jewelry processing units, thus reducing reliance on any particular set of customers or business segments. As of April 30, 2017,it provided services in cities and towns across India, including major cities such as Delhi, Chennai, Mumbai, Hyderabad and Kolkata, with a network of 80 branches including shared branches, having 59 vaults and strong rooms. In addition, as of April 30, 2017, it operates 2,518 cash vans, both owned and leased. It also operated 2,748 cash routes and has set up a secure cash processing unit at New Delhi, to service its customers' needs.

The company's market share of the cash logistics industry in India was approximately between 10.0% and 11.0%, in terms of revenues, as of March 31, 2015, according to Frost & Sullivan. 79.80% of the company's revenue from operations for cash logistics, for FY17, was derived from top 10 customers.

Electronic security services and home alarm monitoring and response services:

In India, the company provides electronic security services including integrated and turnkey electronic security and surveillance solutions combining electronic security with trained manpower and recently entered into a joint venture in order to provide home alarm monitoring and response services.

The company works with reputed system integrators and installers to provide integrated and turnkey electronic security and surveillance solutions combining electronic security with trained manpower, i.e., a blend of physical and technology based services, comprising Man-Tech solutions. These services utilize physical security presence with smart use of technology like camera, NFC cards, GPS devices, remote monitoring among others to optimize service offering. The company's service and product offerings also include CCTVs, access control systems, entry automation solutions, intrusion detection systems, scanners and explosive detection, metal detection solutions, fire detection and public address systems. It provide end to end services including conducting surveys, requirement analysis, solution designing and implementation and installation of electronic security systems. It also offer customized security packages to meet the needs of customers in India in a wide range of industries such as warehousing, construction, retail, banking, educational institutions and hospitality and also provide electronic security solutions to certain customers of its security services in Australia. Its electronic security business employed 46 personnel as of April 30, 2017

Home Alarm Monitoring and Response

In January 2016, the company entered into a joint venture with Singpai Alarms Pte. Ltd. (Singpai Alarms), an affiliate of Prosegur, with the intention to provide home alarm monitoring and response services in India, through SIS Prosegur Alarm Monitoring and Response Services Private Limited (SIS Alarms). In terms of the joint venture agreement, Singpai is to provide technical support and expertise including procuring, supplying or licensing products and processes and allowing it access to its international distribution network. Further, it provide certain shared services to SIS Prosegur Alarm, including provision of ERP platforms, accounting support services, legal support, insurance, treasury support, employee administration support and liaison with government and regulatory authorities. In addition Prosegur and the Company have licensed the use of the Prosegur and SIS trademarks, respectively, for use by SIS Prosegur Alarm in its business.

The company has commenced home alarm monitoring operations in November 2016. It is initially offering services to households, though it also intends to offer such services to small businesses in 2017. It currently provide end-to-end alarm monitoring and response covering installation, monitoring and emergency response in relation to fire alarm systems, fire suppression systems, intruder and burglar alarms, medical and personal emergency systems and perimeter protection systems. It has established a remote alarm monitoring centre that is operational 24 hours a day and seven days a week. It has also entered into arrangements to enable its customers to avail of easy monthly payment options to utilize its services.

Facility management services

:

The facility management services in India include cleaning, janitorial services, disaster restoration and clean-up of damage, as well as facility operation and management such as deployment of receptionists, lift operators, electricians and plumbers, and also pest and termite control. Effective August 1, 2016, the company acquired 78.72% of the outstanding equity shares of Dusters Total Solutions Services Pvt Ltd (Dusters), with the agreement to increase its shareholding to 100% over the next three years. Dusters is the fourth largest facility management services provider in India, in terms of revenues, as of March 31, 2016, according to Frost & Sullivan. The company has developed its portfolio of services in order to cater to the needs of diverse consumer segments, including, business entities, Government organizations and households, and to leverage the growth and potential of such customer segments in India

Cleaning and Facility Operation and Management services

In March 2008, the company entered into an exclusive license agreement with ServiceMaster for the ServiceMaster Clean brand, and associated proprietary processes, operating materials and knowhow in order to develop its facility management business in India. Subsequently, the company assigned its rights associated with the license agreement with ServiceMaster, to its subsidiary, Service Master Clean. In addition, effective August 1, 2016, it acquired 78.72% of the outstanding equity shares of Dusters for an aggregate acquisition cost of Rs116.9 crore. Further, the share purchase agreement provides for acquisition of 100% of the outstanding equity shares of Dusters, by August 2019, in one or more tranches, and at a price to be determined according to a pre-agreed valuation formula.

As of April 30, 2017, the company service 2,541 customer premises in India through 30 branches, including shared branches. The company's customer premises and branches spanned across major cities in India such as Mumbai, Bengaluru, Chennai, Delhi and Kolkata. The cleaning and facility operation and management business employed 38,567 personnel, as of April 30, 2017. The key customers include businesses in the industrial and manufacturing, IT/ITeS, retail, commercial space, hospital, hotel and educational sectors. The facility management business also services certain government organizations and it intend to leverage on Government outsourcing initiatives in India, including the Swachh Bharat cleanliness and sanitation drive covering rural and urban areas in India, as well as tenders from large governmental and public sector enterprises including the Indian Railways to further grow its business. 17.33% of its revenues from operations from its facility management business, excluding the impact of Dusters acquisition on FY 2017, were derived from customers who have been with it for over three years.

Pest and Termite Control

In August 2011, it entered into a joint venture agreement with an affiliate of Terminix, SVM Services (Singapore) Pte Ltd (SVM Services) to set up Terminix SIS India Pvt Ltd (SIS Terminix) and provides pest control and termite solutions for households, businesses and industrial establishments including distribution of allied pest control products in India. In terms of the joint venture SVM Services provides technical support, knowledge and expertise in pest and termite operating models and customer service solutions to SIS Terminix. Terminix has licensed various operating materials, processes, recipes, information, hardware, methods mechanisms and knowhow to SIS Terminix. SIS Terminix also conducts business through its branches and it provide certain shared services including accounting, legal, insurance, treasury, employee administration. Terminix and the Company have licensed the Terminix and SIS trademarks, respectively, to SIS Terminix to develop a co-brand SIS Terminix. The company's services include treatments for termites, cockroaches, rats, mosquitoes, flies and other common pests that are health hazards. The key customer segments include restaurants, food processors, healthcare facilities, lodging and hospitality, manufacturing and warehouses, offices, educational facilities and residences. As of April 30, 2017, it rendered pest and termite control services through 13 branches, including shared branches. The branches spanned across major cities in India such as Delhi, Mumbai, Chennai, Hyderabad and Bengaluru.

Australia business

The company entered in Australia by acquiring Chubb Security's security services business in August 2008. Between FY 2013 and FY 2017, its revenue from operations from security services business in Australia grew at a CAGR of 7.7% in Australian dollar terms. On June 9, 2017, it has signed definitive agreements to increase voting rights in Southern Cross Protection Pty Ltd (SXP) from 10.0% to 51.0%, with effect from July 1, 2017.

With effect from July 1, 2017, the company, through its 100.00% Subsidiary, SIS Australia Group, acquired an additional 41.00% of the voting rights in SXP, formerly one of its associates (SXP Acquisition). As a result, SXP has become one of its Subsidiaries.

The company has entered into strategic relationships in India with several multinational companies. For its cash logistics and alarm monitoring and response businesses, it have entered into joint ventures with affiliates of Prosegur CompaÃ±Ã­a de Seguridad, S.A (Prosegur), a global player in cash management and alarm monitoring. It has also entered into a joint venture with an affiliate of Terminix International Company, L.P. (Terminix), a multinational provider of termite and pest control services. In addition, it has licensed the â€˜ServiceMaster Clean' brand, and associated proprietary processes, operating materials and knowhow for its facility management business in India from The ServiceMaster Company LLC (ServiceMaster) group, a commercial and residential cleaning service provider. Its strategic relationships with reputed industry participants enable it to offer a one-stop-shop for the portfolio of private security and facility management services, benefit from know-how, technology, staff and market reputation of its partners, leverage its existing infrastructure, branch network and customers, and share risk and costs associated with starting new businesses, including by lowering capital expenditure.

The company has set up an extensive employee platform which spans recruitment, customized training and development, deployment, incentivizing and management of personnel. It has deep geographical reach for manpower sourcing and training and currently operate 18 training academies across India and four training academies across Australia. In India, the security services personnel undergo extensive physical and classroom training. The personnel recruitment, training and deployment initiatives are process oriented and technology driven with detailed performance indicator tracking, reporting and evaluation of personnel. The company benefit from a pipeline of operational managers from the graduate trainee officer program undertaken at its training academy at Garhwa, Jharkhand, which is focused on developing a management cadre with in-depth knowledge of its business and operations. Its security personnel in Australia hold the required state security licenses and undergo both company-specific and site specific training.

As of April 30, 2017, the company has a widespread branch network consisting of 251 branches in 124 cities and towns in India, which cover 630 districts. It employs 148,678 personnel in India and rendered security and facility management services at 11,869 customer premises across India. In Australia, it operates in each of the eight states and employed 5,754 personnel servicing 245 customers, as of April 30, 2017. Its widespread branch network enables it to service a large number of customer premises and render customized services across India and Australia.

The company categorize its employees as â€˜billing' employees who are deployed at customer premises and â€˜non-billing' employees who perform non-customer facing functions, including administrative and support functions. As of April 30, 2017, it has an employee base of 154,432 personnel across India and Australia, with billing employees of 102,064 security personnel, 37,997 housekeeping and cleaning staff and 9,980 employees engaged in its cash logistics business

Competition

According to Frost & Sullivan, the market for security services in India is highly fragmented and consistent growth in demand has led to entry and expansion of competition. Organized players currently dominate about 20% of the market revenues and unorganized companies constitute the remaining 80%. However, Frost & Sullivan anticipates that competition from national and regional operators is likely to dominate close to 90% of the market in India by Fiscal Year 2020. The company's key competitors in the organized sector include G4S, ISS, Checkmate, Securitas, Tops, Premier Shield and Peregrine. Further, according to Frost & Sullivan competition in cash logistics services market is restricted to organized companies owing to the nature of business which involves huge volumes of cash and associated risks, with some of its key competitors being CMS Info Systems, Brink's Arya, Writer Safeguard and Securevalue.

According to Freedonia, approximately 60.00% of the Australian security services market is controlled by the top seven providers, with MSS being one of the two largest providers. The key competitors in the security services industry in Australia are Wilson Security, Securecorp, SNP and ISS.

The competition for electronic security services market includes large original equipment manufacturers that possess system integration and service capabilities dominate the market, distributors and system integrators with installation and operation and management capabilities as well as unorganized companies and private security companies. The facility management market in India is highly unorganized and currently consists of more than 500 companies operating across different regions in India. Some of its competitors in this segment are ISS Integrated Facility Services, Bharat Vikas Group, Updater Services, Property Solutions India, Quess Corp Limited, Tenon Property Services, OCS India and Krystal Integrated Services. The Indian pest and termite control services market is highly fragmented with the presence of many small service providers. The key competitors include Pest Control India, Hicare, Rentokil, Updater Services, Orion Pest Solutions and Indo Gulf American Pest Control.

Issues Size and Purpose

The company is coming out with an initial public offering (IPO) with a fresh issue amounting to Rs 362.25 crore at an price band of Rs 805-815 per share of face value Rs 10 each. Out of Rs 362.25 crore, the company will spend Rs 200 crore for repayment of certain borrowing, Rs 60 crore for funding working capital requirements, and rest for general corporate purpose.

Beside the fresh issue of shares, there is also offer for sale of 51.2 lakh equity shares by selling shareholders comprising up to 34 lakh equity shares by Theano Pvt Ltd, 68.33 thousands by AAJV Investment Trust (together, the investor selling shareholders), 7.86 lakhs by Ravindra Kishore Sinha, 5.24 lakhs by Rituraj Kishore Sinha and 3.39 lakhs by other selling shareholders. The offer for sale size at lower price band of Rs 805 per share works out to Rs 412 crore and at higher price band of Rs 815 per share, works out to Rs 417 crore.

Strengths

The company has diverse portfolio of services which comprises of security services, cash logistics services and electronic security and home alarm monitoring and response, as well as facility management services. This extensive portfolio of services enables it to grow its customer relationships and scope of engagements and serve as a single point of contact for multiple services, driving high customer retention

The company's multiple service offerings allow it to derive operational efficiencies, by centralizing certain key functions such as finance and sales and also certain other administrative functions.

The company is second largest security services provider in India, in terms of revenues as of FY 2016, and the fastest growing security services provider in India, based on revenues for FY 2010-FY 2014, according to Frost & Sullivan. Between FY2013 and FY2017, Freedonia ranked its wholly-owned subsidiary, MSS, as the largest security services provider in Australia, jointly with a competitor, in terms of revenuess, as of FY 2015.

The second largest cash logistics service provider in India, as of FY2015, in terms of market share by revenue, number of employees, ATMs served and cash vans utilized, according to Frost & Sullivan

Leading position in facility management services in India.

Spread across the country. As of April 30, 2017, it had 251 branches in 124 cities and towns in India, which cover 630 districts, and rendered security and facility management services at 11,869 customer premises, giving it a nation-wide presence and reducing dependence on any one particular region.

The company has diverse customer base. It provides private security and facility management services to several customer segments such as business entities, government organizations and households. These customer segments range across a variety of industries and sectors, which include banking and financial services, IT/ ITeS and telecom, automobile, steel and heavy industries, governmental undertakings, hospitality and real estate, utilities, educational institutions, healthcare, consumer goods, engineering and construction, which reduces vulnerabilities to economic cycles and dependence on any particular set of customers

Weaknesses

The market for its services in India is highly fragmented and intensely competitive.

The company's business is highly working capital intensive.

The company has a large workforce deployed across workplaces and customer premises. Consequently, it may be exposed to service related claims and losses or employee disruptions that could have an adverse effect on its reputation, business, results of operations and financial condition

The company's businesses are manpower intensive and its inability to attract and retain skilled manpower could have an adverse impact on growth, business and financial condition.

The company derives a significant portion of its total revenue from security services business. The company's security services business in India and Australia contributed a significant portion of total revenue from operations, which was 87.19%, 89.86% and 92.30% of total revenues from operations for FY 2017, FY 2016 and FY 2015, respectively. Further, within security services business, revenues from security services business in Australia (not including the pro forma impact of the SXP acquisition) were 52.43%, 57.15% and 63.40% of total revenues from operations for FY 2017, FY 2016 and FY 2015, respectively.

The cash logistics business exposes it to additional risks in relation to the conduct of its employees, contractual liability and inadequate insurance cover.

The cash logistics business derives a significant portion of its revenue from a few customers and its Australia security services business relies on customers in certain industry sectors. Given the nature of the industry, the cash logistics business is dependent on a limited number of customers for a significant portion of its revenues. For FY 2017, FY 2016 and FY 2015, the top ten customers contributed 79.80%, 81.66% and 80.29% of revenues from cash logistics business, respectively. Further, in Australia, public sector undertakings and governmental customers, including customers in the defense sector, contributed 30.90% and 31.59% of revenues from the Australian security services business, for FY 2017 and FY 2016, respectively. The loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for services could adversely affect business, results of operations, financial condition and cash flows.

The company is required to obtain, maintain or renew statutory and regulatory licenses (including PSARA or the Private Security Agencies (Regulation) Act, 2005, Approvals) in respect of principal business lines, and if it fail to do so, in a timely manner or at all, it may be unable to fully or partially operate businesses and results of operations may be adversely affected. As on the date of this red herring prospectus: (i) Company operates in 34 states and union territories, but has obtained valid PSARA approvals only in 23 states and five union territories. The company's applications for grant/ renewal of PSARA approvals in four states are pending, while two states where the company operates are yet to notify competent authorities to which an application can be made; (ii) SIS Cash operates in 27 states and two union territories, but has obtained valid PSARA Approvals only in nine states and one union territory. SIS Cash has made applications for grant of PSARA Approvals in 18 states and Union territories which are pending, while one of the states in which SIS Cash operates is yet to notify a Competent Authority to which an application can be made; and (iii) SIS Prosegur operates in 14 states and two Union territories but has not obtained any valid PSARA approval. SIS Prosegur has applied for grant of PSARA approvals in 16 states and union territories, which are currently pending. PSARA approvals pertaining to operations in certain states have been suspended in the past. If any of current PSARA approvals are revoked, suspended or rescinded, private security business could be adversely affected.

Any decrease in the use of cash as a mode of payment could have an adverse effect on cash logistics business.

The customers may delay or default in making payments for services rendered by it which could affect profits, cash flows and liquidity. Trade receivables constitute a significant portion of total assets, and were 22.54%, 19.72% and 21.48% of total assets for FY 2017, FY 2016 and FY 2015, respectively. The trade receivables outstanding for over six months were 10.57%, 9.87%, and 10.95% and 8.85% of total trade receivables. An increase in bad debts or defaulting customers may lead to greater usage of operating working capital and increased interest costs

Valuation

The company's consolidated net sales for year ended March 2017 (FY 2017) increased 19% to Rs 4567.09 crore. The sales of security service has increased by 16% to Rs 3982 crore, facility management service by 368% to Rs 386.94 crore and pest control service by 50% to Rs 8.04 crore. Cash logistic business revenue declined by 42% to Rs 165.13 crore. OPM increased by 40 bps to 4.9%. The net profit after share of associates and MI has increased by 21% to Rs 91.28 crore

Revenue from operations increased primarily due to an increase in revenues from security services in India and Australia in local currency terms, cleaning services and facility management service (including the effect of acquisition of facility management business of Dusters in India with effect from August 1, 2016), the effect of the acquisition of specified business contracts, vendor contracts, licensed properties, employees and related assets from Scientific Security, with effect from December 10, 2016 by joint venture companies, viz., SIS Cash and SIS Prosegur, which was partially offset by the full year impact of the conversion of SIS Cash from a subsidiary to a joint venture with effect from February 1, 2016.

The revenue from cash logistics services fell primarily due to the full year impact of conversion of SIS Cash from subsidiary to joint venture in FY 2017 as compared to a two-month period in FY 2016. The company was also impacted during the time frame of November 2016 to February 2017 as a result of the demonetization efforts of the Government of India as there were lower cash replenishment in the ATMs's served by the company on account of shortage of currency notes of newer denomination.

At the lower price band of Rs 805 per equity share of Rs 10 face value, the P/E works out to 64.6 times the annualized consolidated EPS of Rs 12.5 (on post-IPO equity) and at upper band of Rs 815, P/E works out to 65.3 times the annualized EPS of Rs 12.5 (on post-IPO equity) for the financial year ended March 2017.

There is no direct comparable listed company. However Quess Corp (largest IT staff augmentation provider and 3rd largest general staffing provider in India) is trading at P/E of 100 times FY17 EPS of Rs 8.95 while Teamlease Services (leading player in providing temporary staffing services to various industries) is trading at P/E of 34 times FY 2017 EPS of Rs 38.8. Security and Intelligence Services (India): IPO Highlights

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